Senate Banking Committee Leaders Announce Deal on Housing Finance Reform
This morning, Senate Banking Committee Chairman Tim Johnson (D-SD) and Ranking Member Mike Crapo (R-ID) announced that they have reached an agreement on legislation to reform the housing finance system. The senators’ announcement says they intend to introduce the legislation within days and that the Committee will markup the bill in the coming weeks. The announcement also confirms that the legislation is based heavily on the Housing Finance Reform and Taxpayer Protection Act of 2013, S. 1217, introduced by Senators Bob Corker (R-TN) and Mark Warner (D-VA).
While legislative text is not yet available publicly, Johnson and Crapo’s statement says their legislation would:
- Start with S.1217 as the base text and generally maintain its overall architecture.
- Wind down and eliminate Fannie Mae and Freddie Mac.
- Promote a smooth and stable transition from the old system to the new system by providing specific benchmarks and timelines to guide Federal Mortgage Insurance Corporation (FMIC) and market participants.
- Transfer appropriate functions to the modernized, streamlined, and accountable FMIC, modeled in part after the FDIC, including its regulatory authority.
- Mandate 10 percent private capital up front, and create a mortgage insurance fund for the system to protect taxpayers against future bailouts.
- Create a member-owned securitization platform that will issue a single, standardized FMIC-wrapped security, and permit private-label securities to be issued in a manner that encourages standardization and improved market liquidity.
- Establish a mutual cooperative jointly owned by small lenders to ensure institutions of all sizes have direct access to the secondary market so community banks and credit unions are not at the mercy of their larger competitors when Fannie Mae and Freddie Mac are dissolved. The small lender mutual cooperative would provide a cash window for individual eligible loans, and small lenders could retain servicing rights.
- Provide clear rules of the road for servicers that choose to participate in the FMIC system.
- Maintain a vibrant multifamily market by building upon successful risk-sharing mechanisms and products and providing access to a broad range of markets.
- Require strong underwriting standards that mirror the definition of “qualified mortgage”, and set down payment requirement at 5 percent (with a short phase-in) except for first-time homebuyers at 3.5 percent.
- Facilitate the broad availability of credit for eligible single-family and multifamily borrowers, monitor consumer and market access to credit, and provide market based incentives and transparency to serve underserved areas.
- Eliminate affordable housing goals and establish transparent and accountable housing-related funds that would focus on ensuring there is sufficient decent housing available. The statement says these funds are NOT paid for with tax dollars, but through a small FMIC user fee (10 basis points) that only those who choose to use the system pay.
- Allow current conforming loan limits to be maintained so that mortgage credit continues to be available in high-cost areas.
- Maintain broad liquidity in the To-Be-Announced (TBA) market and direct FMIC to take into account the impact of new products on the TBA market.
The statement also says that, to move forward, housing finance reform legislation must, “provide equal access for lenders of all sizes to the secondary market” and, “facilitate broad availability of mortgage credit for all eligible borrowers in all areas and for single-family and multifamily housing types.”
Johnson and Crapo have indicated throughout the process of developing their bill that they would base it largely on the Corker-Warner framework. NCSHA and its members have been in regular contact over the last several months with Senate Banking Committee members and their staff and with Administration officials, recommending ways the Corker-Warner bill could be revised to enhance HFA access to the new secondary market system and to ensure that the system supports affordable housing opportunities for all consumers and communities.